Teachers pension (career average) - how best to retire early

Young_worker

My partner is in the Career Average (post 2015) Teachers Pension Scheme, currently accruing at 1/57th per year at the default, contributing 8.6% of earnings (going up to 9.6% in september due to a pay rise, will still be a basic rate taxpayer). We are both in our late 20's. She is clueless about pensions, I know quite a bit more but even I am struggling to get my head around the TPS (I'm in a private sector DC scheme). 
We are both set on as early retirement and have plenty of ideas of how to fill the time. I'm maxing out my DC contributions and am comfortable I will be in a good place by 58 (or whenever the goalposts shift to on when I can access it...). We are also using S&S ISAs to build up a fund to bridge the gap between hopefully retiring and being able to access our pensions... 
For the teacher's pension, ideally we would like to access it as soon as possible - the NPA is 68, so hopefully 58.... I've seen a few things on the website about building up a bigger pension (faster accrual, buyout, extra pension etc) but cannot work out what is better, particularly if aiming to take it early and if this is good value vs just using S&S ISA (presume TPS is better...I have also seen something about actuarial reduction to taking teachers pensions early but only for final salary pre 2015 pensions, rather than career average (surely that can't be right?). I did see a thread somewhere else on MSE about teacher's pensions but cannot find it now. 
So any help/guidance would be gratefully appreciated on the best way of getting the Career Average Teacher's Pension into as good shape as possible, particularly if aiming to retire early. 

xylophone

https://www.teacherspensions.co.uk/members/working-life/paying-in/increasing-your-pension/additional-pension.aspx
Just like the main Scheme benefits, if you take your Additional Pension benefits before you reach your Normal Pension Age, they'll be actuarially adjusted to reflect the fact they'll be in payment for longer.
https://www.teacherspensions.co.uk/members/planning-retirement/types-of-retirement/early-retirement.aspx

GunJack

She may be better opening a SIPP or other private pension rather than S&SISA - you could be invested in the same things, but get the 20% tax relief added when the contributions are made, and so they get more time to compound. This would build up, effectively, a DC pot which could bridge the gap between retiring early (and living off the SIPP/PP) so you don't have to take the TPS early and therefore avoid the actuarial reduction that would be applied (yes, to the Post-2015 career average TPS as well as the older final salary one). 30+/57ths of career average TPS by 58, still grows in deferrement by (CPI? RPI? I don't know, but it doesn't stand still), and would be better to leave until scheme retirement age if possible.

Young_worker

Thanks both. Using the Government Actuarial Department tables that are linked to through your link Xylophone - only place I have seen the current actuarial adjustments is page 30, appendix C - the table of actuarial reduction factors (MSE won't let me post a link ). So based on how I read it, if she started taking her pension 10 years before NPA (ignoring that the NPA of 65 in the table and assuming it stayed the same for 58 vs 68) then she would get 0.625 of the accrued pension that could be drawn in full at NPA....

I know the TPS is a great pension but it is far from simple!!

Thrugelmir

Don't forget to budget on having your mortgage paid off by the time you retire. There's a lot that can happen in the intervening years. Pension provision shouldn't be the only objective. 

cobson

You may want to have a look at this board, as it is specifically for teachers pensions and retirement:
https://community.tes.com/forums/retirement.117/

kinger101

GunJack said:

She may be better opening a SIPP or other private pension rather than S&SISA - you could be invested in the same things, but get the 20% tax relief added when the contributions are made, and so they get more time to compound. This would build up, effectively, a DC pot which could bridge the gap between retiring early (and living off the SIPP/PP) so you don't have to take the TPS early and therefore avoid the actuarial reduction that would be applied (yes, to the Post-2015 career average TPS as well as the older final salary one). 30+/57ths of career average TPS by 58, still grows in deferrement by (CPI? RPI? I don't know, but it doesn't stand still), and would be better to leave until scheme retirement age if possible.

The SIPP isn't that tax efficient for BR taxpayers aged below 40.  You might get "20% tax relief" going in, but it's just tax deferment.  The pension will be taxable at marginal rate on exit.  Given the 25% tax free, that means 15% rather than 20%.  So for every 80 p of net salary in, 85 p of net pension comes out.  An uplift of 6.25%.  LISA on the other hand gives one a 25% uplift.

Likewise if TPS is a salary sacrifice scheme (I've no idea), additional contributions get this get a 25 % uplift, as the 85 p net pension costs only 68 p once as NI is also saved (100 p - 20 p income tax, - 12 p national insurance = 68 p).

I'd do cost/benefit analysis of the TPS AVC vs LISA.   

BishopBrennon

Kinger makes a good point above re:considering an LISA. On the other hand, if you planned to use the funds to bridge the gap between leaving work and the tps/state pension, you'd be able to withdraw £16600/year without paying tax using the 25% tax free and personal allowance (according to the current rules). The drawback of the Lisa is the (hopefully small) risk that if you needed to claim benefits, the savings in the Lisa are taken into consideration. The LISA is definitely worth considering as it's all tax-free going out, but with that creveat. 

The tps is not salary sacrifice (so national insurance is not saved). 

Young_worker

Thanks all. I think we need to run a few scenarios looking at TPS and taking early vs S&S ISA vs LISA. Am weary on the LISA due to wanting flexibility to access before 60...so may be part of the solution rather than the only solution. Thanks again  

german_keeper

Firstly congratulations on getting a grip of this at a relatively young age. Just a couple of things you might want to bear in mind - over the next 30 years!! 
Firstly actuarial reduction: I am quoting from my experience of Civil Service Classic pension but I assume TPS may be the same so it's worth checking. The AR factors can change, the CS ones did last year and in fact became more beneficial. And the CS lump sum factors are different to the annual pension ones. Lump sums are reduced by less. I would think it unlikely that changes to the factors would be so significant to make you change decisions but worth keeping an eye on.
Secondly the McCloud judgement. This concerned judges and firefighters and said that recent pension changes fell foul of age discrimination. The govt has accepted the ruling and that it applies to all public sector pensions. We are currently waiting to see what happens but I assume there will be information on the TPS website. I am not sure how likely it is but IF we are given the option of reverting back to the old pension scheme don't assume the old one is better. For me the new CS Alpha scheme is better than the old Classic scheme, although I am actually in the Partnership DC scheme but that's a long story!      

Young_worker

@german_keeper As far as I can see from stories online and the TPS website - as she joined the TPS in September 2015 (i.e. after career average introduced) she won't be impacted by the McCloud judgement? Or am i missing something?